Monday, September 22, 2008

Moody's lowers rating on Washington Mutual Bank (WM)

From the AP via Forbes:

Moody's Investors Service on Monday downgraded the financial strength rating of Washington Mutual Inc.'s main bank subsidiary to "E," its lowest rating, saying the thrift's capital is insufficient to absorb its mortgage losses....MORE

Washington Mutual Inc., the nation's largest thrift, is on the auction block, but it's now waiting to see how the government will treat its precarious situation. Prospective buyers have primarily shied away from the thrift because of its large mortgage-related assets. Here are some eye-opening numbers buyers have been seeing about the thrift courtesy of Standard and Poor's and WaMu:

$310 billion Total assets -- 10 times the size of IndyMac Bank, which failed in July

$181.5 billion Single-family home loans

$4.8 billion Losses in the first half of 2008, mostly due to bad home loans

$4.5 billion Provisions for losses added in third-quarter 2008

$19 billion Total mortgage losses foreseen for this economic cycle

3.6% Percent of loans in arrears in the second quarter of 2008, up from 2.87% in the first quarter

The Seattle thrift has drawn interest from potential suitors such as Citigroup Inc., J.P. Morgan Chase & Co., Wells Fargo & Co. and Banco Santander SA of Spain, according to people familiar with the situation.

While some people close to the discussions hope a deal could be struck within days, one stumbling block is that a straightforward sale of WaMu would require the buyer to absorb the company's troubled assets.

With WaMu expecting losses of $19 billion on its mortgage portfolio during the next 2½ years, some would-be bidders favor a government-assisted takeover, people familiar with the matter said. One scenario is that the Federal Deposit Insurance Corp. would seize control of WaMu's banking unit and then sell its deposits to another bank....MORE